well, you should first try to run web site under "Integrated" pipeline mode. This error might indicate that there are some ISAPI filters running, but I think it's not directly related to elfinder connector.
Did you try to create new website with minimal dependencies, integrated pipeline mode and with elfinder connector?

Well, I think that setting this option to "false" should not be a problem, but you can check here for further information:
http://www.iis.net/configreference/system.webserver/validation
It looks like that kind of problems exists when you are switching from Classic mode (and/or IIS6) to Integrated mode (in IIS7+).